Legal/Legislative Update – August 1, 2015

Published on: July 31, 2015


cfpb-consumer-financial-protection-bureauThe Consumer Financial Protection Bureau (CFPB) has delayed for two months the implementation date for the new consolidated Truth-in-Lending/RESPA disclosure rules. Mortgage lenders, settlement service providers and their vendors, who have been scrambling to prepare for the new requirements, will now have until October 3rd to make the adjustments in software, procedures and staffing they will need. Many industry executives had warned they would not be able to complete those preparations by August 1, when the rules were originally scheduled to take effect.

But industry trade groups are still pushing the CFPB to honor an enforcement grace period during which entities making a good faith effort to comply won’t be penalized for violations. While the agency has agreed to be “sensitive” to the compliance challenges the sweeping disclosure rules will create, it has refused thus far to approve the formal hold-harmless period mortgage lenders and others have requested. The preamble to the final rule delaying the implementation date restates that position.

More than 20 trade groups representing lenders, Realtors, home builders, title agencies and others affected by the new requirements, have signed a letter supporting legislation that would mandate the enforcement delay. A formal grace period is needed, the letter says, to ensure that closings won’t be disrupted after the new rules take effect, as the industry is still adjusting to them.

“We appreciate that the Bureau indicated it will be sensitive to the progress made by those entities that make good-faith efforts to comply,” the letter states. But the industry needs more certainty that it won’t face litigation and regulatory enforcement actions while still trying to adjust to the new rules.

“While the industry has been granted time to prepare for this new disclosure regime,” the letter notes, “there is no transition period for the regulation. A hold-harmless period allows the Bureau to work with industry to gather data about implementation and provide written guidance to address common industry implementation hurdles that emerge after these new disclosures are put into use.”


mdar-logo-192-95The Massachusetts Agriculture Department has approved regulations restricting both agricultural and non-agricultural uses of fertilizers containing phosphorous, nitrogen or potassium – all known to oppose a threat to water supplies. For residential purposes, fertilizers (other than organic fertilizers and compost) containing more than 0.67 percent phosphate by weight can be used only to establish or renovate existing lawns. They can also be used “where needed” to promote growth, but that need must be documented by a soil test taken within the last three years. The rules also:

  • Prohibit the application of restricted fertilizers between December 1 and March 1;
  • Bar applications within 10 – 20 feet of waterways, depending on the application method, and within 100 feet of surface waters used for public drinking supplies.
  • Require professionals who apply these fertilizers to maintain records of the applications for at least three years.

The regulations are designed “to ensure that plant nutrients are applied in an effective manner to provide sufficient nutrients for maintaining healthy agricultural and non-agricultural land, including turf and lawns, while minimizing the impacts of the nutrients on surface and ground water resources to protect human health and the environment,” the public notice explains.


The buy-vs.-rent calculation, which had shifted in favor of renting during the housing market’s down years, has shifted back again as growing demand for rental units have outstripped the supply.

RealtyTrac’s most recent “buy-or-rent” analysis found that housing payments (including mortgage, insurance and property taxes) were lower than the rent on comparable three-bedroom homes in 66 percent (188) of the 285 counties the company analyzed. But the study also found that the markets in which the scales tipped toward rental were those suffering most from the foreclosure crisis that followed the housing downturn.

On that point (foreclosures), the foreclosure inventory has dropped to its lowest level in nearly eight years, according to a recent CoreLogic report. The number of completed foreclosures on residential properties in May was 19.2 percent below the year-ago level and nearly 65 percent below the September, 2010 peak.

The approximately 490,000 foreclosed homes in May represented 1.3 percent of all homes with mortgages, down from 1.7 percent (676,000 homes) a year ago.


The home purchase and rental markets usually move in opposite directions. When one rises, the other typically remains flat or falls. Soaring foreclosures and a battered housing market – both byproducts of the severe economic downturn – predictably boosted demand for rental units. But strengthening home sales have not as yet made a dent in the still sizzling rental sector. Rents nationally increased at an annual rate of 5.1 percent in June, the fifth consecutive month in which annualized increases have totaled 5 percent or more, and a 47-month high for the market, Axiometrics, which compiles data on the rental market, reported. The occupancy rate — stuck around 95.3 percent for the past several months ― explains the trend.

“Tight occupancy is why landlords can push rents higher,” Stephanie McCleskey, vice president of research for Axiometrics, said. Despite a considerable influx of new multi-family units, “there are just not that many apartments available. There’s a reason for all the new supply,” she added. “The market is still playing catch-up for all the apartments not built during the recession.”

The conversion of single family homes to rentals filled part of that gap. CoreLogic estimates that 3 million detached single-family homes were added to the nation’s rental stock between 2006 and 2013, as investors aggressively acquired foreclosed properties and converted them to rentals. Single-family homes now represent nearly 40 percent of the rental stock, according to CoreLogic – about the same as the multi-family share (42 percent). Two-to four-family dwellings comprise the rest.

“While the growth in the rental stock has been large, so has been the demand,” Frank Nothaft, CoreLogic’s chief economist, said in a recent report. “Some of the households seeking rental houses were displaced through foreclosure. Others were millennials who had begun or were planning families, but were unable or unwilling to buy.”

He predicts that millenials’ desire for mobility and their tendency to delay marriage and children will continue to stoke demand for “for at least a few years…. [and] as millennials begin to form their own families, demand for single-family rental homes may remain strong as well,” Nothaft suggests.


Housing industry professionals view the continuing decline in the nation’s home ownership rate (which hit a new low in the second quarter) as a sign of housing market distress – if not a cause of it. But some Federal Reserve economists think the trend reflects good sense on the part of ‘millenials’ who have demonstrated a marked preference for renting homes over owning them. (See related item above.)

Challenging the conventional wisdom that young consumers should stretch as much as necessary to enter the housing market as soon as they can, two St. Louis Fed researchers suggest that millenials would be well-advised to delay the home buying step, building wealth and achieving financial stability in other ways before buying their first home. The researchers ─ Bill Emmons, and Bryan Noeth, senior economic adviser and lead policy analyst, respectively at the St. Louis Fed’s Center for Household Financial Stability ―aren’t suggesting that owning a home is a bad idea; only that stretching too much and too soon to make the purchase may be a mistake, if it leaves a family without the ability to save and diversify its investments.

Millenials would be better advised, they suggest, to “delay the purchase of a home with its attendant debt burden until it is possible to buy a house that does not make the family’s balance sheet dangerously undiversified and highly leveraged.”

The major point of their essay is that wealth-building varies, or should vary, by age, education level and race. And millenials in their view should mimic the strategies and portfolio mix of older households, with less debt and less emphasis on real estate in their portfolio mix.

Surveys indicate that millenials view home ownership as a desirable goal and Emmons and Noeth don’t disagree. They just think this generation should wait a bit longer and save a bit more than previous generations did before taking that step.


Pending home sales fell slightly in June, ending a string of five consecutive month-over month increases. But the National Association of Realtors index was remained higher compared with the same month last year, posting the 10th consecutive year-over-year gain and the third-highest reading this year.

The increasing minority population will change the structure of the housing market. That’s according to David Stevens, president and CEO of the Mortgage Bankers Association, who noted in a recent interview that only about one-third of the new households created over the next decade will be headed by non-Hispanic whites. “We’re moving to a country that is going to be majority minority,” he said. “And in terms of home sales, it is going to be vastly majority minority….”

A recent study has challenged the prevailing assumption that outsized student loan debts are preventing young adults from entering the housing market.

The Consumer Financial Protection Bureau has published its first monthly compilation of consumer complaints. The largest banks and non-bank financial institutions received the most complaints; debt collection policies topped the list (32 percent) followed by complaints related to mortgages and credit reports.

Upholding a central tenet of the prevailing regulatory philosophy, a federal court has ruled that a lender can be held liable for RESPA violations committed by one of its vendors.

First-time buyers represented 38 percent of home purchasers in April – up from 34 percent in and the largest percentage in more than four years, according to a Mortgage Bankers Association survey.



Condo developers won one and lost one in recent court decisions dealing with their authority to make decisions affecting communities they have created. In Ohio, an appeals court ruled that the rights a developer had reserved did not include the authority to enforce restrictive covenants. The developer in this case (Reinsmith v. Curtis) created Deerfield Estates ─ a four-lot subdivision — in 1995. He developed five more lots on the east side of the property seven years later, selling four of those lots but retaining ownership of one.
The four lots he sold were subject to a set of restrictive covenants, specifying that the developer (Reinsmith) must approve any structures built on them. But the covenants also stated that the restrictions were intended “for the benefit of the Deerfield Estates lot owners,” and further specified that Deerfield Estates owners had the authority to enforce them. When the owners of one of the East Side lots (the Curtises) constructed a garage on the property without obtaining his permission, Reinsmith sued them.

The Curtises argued that Reinsmith lacked standing to bring the action because he did not own property in Deerfield Estates. The trial court and the appeals court both agreed.

Upholding the lower court decision, the appeals court said that the language of the covenants was unambiguous and did not give Reinsmith the right to enforce the lot restrictions. “It simply means exactly what is written and cannot be interpreted to mean anything else,” the court said.

The developer fared better in a dispute with a Pennsylvania condo association, which contested the developer’s right to create a privately-owned parking garage in the 114-unit community (Tivoli Condominium Association v Rodin Parking Partners, L.P.). The public offering statement (POS) indicated that initial buyers would have an opportunity to purchase dedicated parking spaces; unsold spaces would be combined with other portions of the garage and driveways to create a garage unit in the condominium. The POS also specified that the boundaries of the garage would be delineated in a revised plan after the number of spaces to be included in it had been determined.

When the developer eventually filed the confirmation deed noting the garage boundaries, the association’s board filed suit, claiming that the parking spaces were actually part of the common element, controlled by the association and not the developer, because the declaration had not described the garage boundaries, as state law requires.

The trial court sided with the developer and the appeals court upheld that decision, finding that the declaration and the POS had clearly stated and properly reserve the developer’s right to convert portions of the garage unit into limited common elements. Although more common in commercial developments, the appeals court noted, this right is equally useful in residential developments “where the declarant needs to retain a high degree of flexibility to meet the space requirements of prospective purchasers, who may not approach him until the condominium has already been created.”

In this case, the court noted, the developer’s intention to create a garage was clearly stated in the Declaration, the POS and the confirmation deed. The court also rejected the association’s arguments that the declaration failed to specify the boundaries of the garage, and that the confirmation deed improperly created additional parking spaces not specified in the declaration. According to the court, the confirmation deed “merely confirmed the validity of the Garage Unit’s final total of parking spaces” when the sales to owners were complete and it was possible to do so.

The developer’s intentions “were well known to association members,” the court ruled, and the confirmation deed affirming his plan “was not in contravention of either the Declaration or the Condominium Act.


“A ZIP code should never prevent any person from reaching their aspirations.” ─Julian Castro, secretary of the Department of Housing and Urban Development, announcing HUD’s new Fair Housing regulations.